The eligible expenses under IPA II and IPA III projects are the ones that directly contribute to project objectives and that are connected with the contractual actions. In this context, the eligible expenses are as follows:

• Direct costs relating to the project actions:

Service procurements such as consulting, training, and technical assistance; supplies required for a project such as equipment, software, and hardware; and works such as infrastructure, facility construction, and rehabilitation.

• Activity-based expenses:

Venue, equipment, translation, and printed materials expenses for trainings, workshops, conferences, and similar events; and also the expenses such as poster, brochure, social media contents and websites for visibility and communication activities.

• Eligible project management costs:

Expenses envisaged for the fees payable under the labour contracts of experts assigned to a given project, along with the travel and accommodation expenditures, daily allowances, and study visits.

• Incidental budget use:

Additional expenses that arise during the project implementation, that cannot be predefined in detail, but that are clearly justified, and that are required for an efficient project implementation, provided that they are identified in the contract in advance and approved by the contracting authority.

Note: The administrative operating costs that do not directly contribute to a given project’s objectives and the salaries payable to an institution’s own personnel do not constitute eligible expenditure.

Pursuant to the Article 26 of the Framework Agreement signed by and between Republic of Türkiye and the European Commission in the scope of the Instrument for Pre-Accession Assistance (IPA II), taxes and charges with an equal effect do not constitute the eligible expenditure. However, some vouchers and invoices may include tax amounts. In such a case, the tax amounts in the said documents must be deducted when preparing a financial report and payment requests must be made only on the basis of an amount net of tax.

Pursuant to the Article 29 of the Framework Agreement signed by and between Republic of Türkiye and the European Commission in the scope of the Instrument for Pre-Accession Assistance (IPA III), ineligible expenses are explicitly enumerated.

Furthermore, all payments to be made under the Agreement must be based on the “sound financial management” principle and cost effectiveness, economy, and efficiency must be observed in expenditure. In this context, the contracting authority may reject as ineligible expenditure the expenses that are not found to be in conformance with a given project’s objectives by the contracting authority or beneficiary of a project, that lack any required approval or supporting documentation under a given contract, or that are considered to be inefficient and ineffective.

Personnel expenses cannot be covered under IPA legislation, both during the project development phase and during and after implementation.

A contractor will submit invoices to the Project Implementation Department. The subject department will make payments following the review and preliminary approval by the beneficiaries of interim period reports evidencing the appropriate conduct of actions.

Regarding any expenses incurred in any currency other than Euro (EUR), the Euro equivalent of a given amount must be calculated according to the European Commission’s exchange rate released for the month of actual expenditure. In this context, the official exchange rates released by EuropeAid must be considered and the current exchange rates must be accessed at http://ec.europa.eu/budget/contracts_grants/info_contracts/inforeuro/index_en.cfm address.

Any expenses incurred under the EU contracts are exempt from the following:

• Import Tax;
• Value Added Tax;
• Special Consumption Tax;
• Income and Corporate Taxes;
• Inheritance and Transfer Tax;
• Stamp Tax;
• Special Communication Tax; and
• Motor Vehicle Tax.

As set forth in subparagraph 2/d of Article 28 of IPA III Financial Framework Partnership Agreement, “Contractors shall be exempted from VAT for any service rendered or goods supplied or works executed under the Union contract.

Authority to Submit VAT Exemption Certificate Application

a) For the Acquisition of VAT Exemption Certificate and among the Contractors

1. that are domiciled in Türkiye without any taxpayer status of any tax type (except for impermanent taxpayer status) will submit their applications in the place of their domicile (where domicile is unidentifiable, the place of contract execution);
2. that are natural persons with any taxpayer status of any tax type (except for impermanent taxpayer status) will apply for their tax liability;

• that are legal persons with their headquarters (registered office) domiciled in a city where there is an established Tax Office Directorate and having share of less than 40 (forty) million Turkish Liras (40 million Turkish Liras included) budget allocated them in the Union Contract signed will submit their applications to the Tax Office Directorate of that city (those being the taxpayer of Large Taxpayer Office Directorate, to that Taxpayer Office Directorate), while those having a budget share of more than 40 (forty) million Turkish Liras allocated them in the Union Contract, to the Revenue Administration;

b) For the Acquisition of VAT Exemption Certificate and among the Union Contractors

1. that are domiciled in Türkiye without any taxpayer status of any tax type (except for impermanent taxpayer status) will submit their applications in the place of their domicile (where domicile is unidentifiable, the place of contract execution);
2. that are natural persons with any taxpayer status of any tax type (except for impermanent taxpayer status) will apply for their tax liability;

• that are legal persons with their headquarters (registered office) domiciled in a city where there is no established Tax Office Directorate and having share of less than 20 (twenty) million Turkish Liras (20 million Turkish Liras included) budget allocated them in the Union Contract signed will submit their applications to the Revenue Office Directorate of that city, while those having a budget share of more than 20 (forty) million Turkish Liras allocated them in the Union Contract, to the Revenue Administration;

c) Among the natural persons not resident in Türkiye without any taxpayer status of any tax type (except for impermanent taxpayer status)

that are Contractors (including Resident Twinning Advisers) and are legal person Union Contractors without a workplace in Türkiye will submit their applications to the Revenue Administration regardless of the budget amount allocated them in the Union Contract signed.

The foreign currency buying rate of Central Bank of the Republic of Türkiye released on the application date will be taken as a basis in determining the application authority of the Union Contractors with a budget share denominated in Euro (€) as set out in the Union Contract. The term “application date” refers to the date by which a Union Contractor’s application letter of VAT Exemption Certificate is entered in the document register of the authority applied.

The VAT Exemption Certificate is applicable to such expenses that are directly relevant to the project activities and that are contractually approved in the scope of the projects financed by the European Union. In this context,

• Procurement of supplies and services: Procurement of equipment, materials, software, hardware, training, consulting, technical assistance, etc. services required for project implementation;
• Works: Construction, infrastructure, and rehabilitation works carried out in the project scope;
• Activity expenses: Training, workshop, conference, and visibility actions that directly contribute to project implementation

can be considered within the scope of the VAT exemption.

However,

• the general administrative expenses that do not directly contribute to project objective; and
• that constitute the organization’s routine operating costs or own personnel’s salaries
  cannot be considered within the scope of the VAT exemption.

This practice is implemented under article 26 of the Instrument for Pre-Accession Assistance (IPA) Framework Agreement and “VAT Exemption Implementing Procedures and Principles for the European Union Financial Assistance.”

Regarding legal matters, contractor companies must abide by the laws and rules of a beneficiary country pursuant to the article 7.4. of the general conditions of the contract.

Regarding tax liabilities, according to the article 26 of the Framework Agreement, on which IPA funds are based,

• if there is a Double Taxation Agreement between a contractor company’s country and our country, and
• if the implementation period of a contract is longer than 183 days within 1 year, Türkiye will be entitled to tax the contractor company. In order to pay this tax as an income tax rather than a withholding tax, the contractor company
  • must be a full-fledged taxpayer registered in Türkiye, or
  • assign a permanent representative in Türkiye.

Our Ministry must be officially notified in writing regarding this matter.

Documents required for a prefinancing payment:

• Cover letter addressed to our Ministry’s Department of Project Implementation
• Payment request and invoice
• Letter of guarantee at an amount equal to the advance payment
• Insurance policy

SSI (Social Security Institution) number, tax register, and all other legal notices must be submitted to our Ministry until the advance payment is made.

Documents required for interim and final payments:

• Cover letter addressed to our Ministry’s Department of Project Implementation
• Payment request and invoice
• In case of Fee-Based projects, an Independent Audit report bearing the seal/stamp and signature of an audit form on each page. This requirement is not sought in case of Global Price projects.
• In case of Fee-Based and Hybrid (Fee-Based and Global Price) contracts, an independent audit firm’s invoice
• Financial report drawn up for man/days and incidental budget
• Copy of a letter authenticating the Implementing Unit’s approval that the payment period’s interim report has been approved
• A copy of each approved timesheet
• Expert approvals
• Approvals of weekend working, public holiday working, and teleworking, if any
• Approvals of incidental budget expenses, if any, approved by a Beneficiary and our Ministry
• Copies of vouchers, invoices, and supporting documents for incidental budget expenses and copies of flight documents, coach tickets, accommodation papers, etc. evidencing intercity accommodation for allowances request for experts’ intercity duties
• “Debt clearance certificate”, if any, issued by the SSI unit
• Tax clearance certificate, if any
• Supporting documents (report approval certificates, pictures, videos, meeting minutes, etc.) for expenses in case of Global Price contracts

Advance payment:

• Cover letter addressed to the Department of Project Implementation
• Payment request and invoice
• Letter of guarantee at an amount equal to the advance payment

Final payment:

• Cover letter addressed to the Department of Project Implementation
• Invoice
• Temporary Acceptance Certificate
• SSI Clearance Certificate (for the supplies that are readily available in the market)
• Certificate of Origin and/or Turkish Goods Certificate
• Test Certificate, if any

First advance payment:

• Declaration of Honor
• Cover letter addressed to the Department of Project Implementation
• Financial Identification Form
• Documents sought under the Implementing Guidelines drawn up and released by our Department

Further Advance Payments

• Declaration of Honor
• Cover letter addressed to the Department of Project Implementation
• Expenditure Verification Report, if any, and invoice thereof issued by an Independent Audit firm
• SSI Debt Clearance Certificate
• Tax Clearance Certificate
• If there is a Payment Request, filling out a payment dossier, which will be prepared in line with the Implementing Guidelines drawn up and released by our Department, and relevant tables (in Excel format), accompanied by other required documents

Final Payment

• Declaration of Honor
• Cover letter addressed to the Department of Project Implementation
• Expenditure Verification Report, if any, and invoice thereof issued by an Independent Audit firm
• If there is a Payment Request, filling out a payment dossier, which will be prepared in line with the Grant Implementing Guidelines drawn up and released by our Department, and relevant tables (in Excel format), accompanied by other required documents
• SSI Debt Clearance Certificate
• Tax Clearance Certificate

Advance Payment

• Cover letter addressed to the Department of Project Implementation drawn up by a consulting firm to approve the payment
• Photocopy of the letter whereby the contractor has sent their payment request to the consulting firm
• Interim payment certificate (No:0)
• Payment request and invoice
• Letter of guarantee at an amount equal to the prefinancing payment
• Workplace application letter submitted to SSI (Social Security Institution)
• Insurance policy
• Receipt evidencing the payment of insurance policy amount

Interim payments

• Cover letter addressed to the Department of Project Implementation drawn up by a consulting firm to approve the payment
• Photocopy of the letter whereby the contractor has sent their payment request to the consulting firm
• Interim payment certificate (No: 1, 2, 3, …)
• Invoice
• Monthly report
• Insurance policy if no prefinancing payment was made (to be decided upon at the first payment request)
• Document evidencing that insurance policy premia have been paid
• SSI Debt Clearance Certificate
• Certificate of Origin

Final interim payment:

• Cover letter addressed to the Department of Project Implementation drawn up by a consulting firm to approve the payment
• Photocopy of the letter whereby the contractor has sent their payment request to the consulting firm
• Final payment certificate
• Invoice
• Monthly report
• SSI Debt Clearance Certificate
• Statement at Completion (FIDIC 14.10)

Retention money payment:

• Cover letter addressed to the Department of Project Implementation drawn up by a consulting firm to approve the payment
• Photocopy of the letter whereby the contractor has sent their payment request to the consulting firm
• Payment request
• Temporary acceptance certificate signed by the contracting authority
• Statement at Completion (FIDIC 14.10), if not issued during final payment

Final payment:

• Cover letter addressed to the Department of Project Implementation drawn up by a consulting firm to approve the payment
• Photocopy of the letter whereby the contractor has sent their payment request to the consulting firm
• Final report
• Invoice
• SSI Clearance Certificate
• Final Acceptance Certificate
• Clearance Notice (FIDIC 14.12 –Discharge)
• Test Certificate, if any

Social Insurance Institution Obligations

The legal basis of transactions relating to the Social Security Institution (SSI) is the Social Security and General Health Insurance Law Nr. 5510 and the Circular Nr. 2008/88. Accordingly:

• If the assistant personnel or experts to be employed by a contractor company under the contract are subject to the Social Security Institution (SSI) regulations, the contractor company must apply to the Provincial Social Security Directorate of the province where the contract will be implemented and have a workplace registered specifically for the tender-subject work. The SSI workplace number obtained as a result of this registration process must be officially notified to the Ministry.
• If the assistant personnel or experts to be employed by a contractor company under the contract are not subject to the Social Security Institution (SSI) regulations, the contractor company must still apply to the relevant Provincial Social Security Directorate and declare that no personnel subject to SSI regulations is employed in the tender-subject work and submit the Ministry a letter issued by SSI to authenticate this fact.
• If experts or assistant personnel that will serve under the contract are employees of the contractor’s existing registered workplace, it is mandatory to report this to the SSI and notify the existing workplace number to the Ministry.

In case of Fee-Based service contracts, pre-financing is recovered according to the article 29.1 of the General Conditions; in case of Global Price contracts, according to the article 29.1 of the General Conditions considering the article 30.6 of the General Conditions; and in case of work contracts, according to FIDIC Article 14.2.

Where the contracting authority determines any deficiency in payment requests, it may request contractors to remedy the same or submit new supporting documents. Payment process is postponed until the relevant document are summitted to our Office.